HomeMy WebLinkAboutMINUTES - 11141995 - SD6 TO: BOARD OF SUPERVISORS 1.0A `"".5....... ,°� Contra
FROM: r� �l t,
INTERNAL OPERATIONS COMMITTEE Costa
County
DATE: November 6 1995
tri 2`d'u+�
SUBJECT: COMPOSITION OF A COUNTY TREASURY OVERSIGHT COMMITTEE
SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION
RECOMMENDATIONS:
1. AGREE in principle to form a seven-member County Treasury Oversight
Committee, as will be required by SB 866 (Chapter 784, Statutes of 1995) effective
January 1, 1996, composed as follows:
4 One representative appointed by the Board of Supervisors.
O The County Superintendent of Schools or designee.
4 One representative selected by a majority of the presiding officers of the
governing bodies of the school districts and the community college district
in the County.
4 One representative selected by a majority of the presiding officers of the
legislative bodies of the special districts in the County that are required or
authorized to deposit funds in the County Treasury.
P Three members of the public, a majority of whom shall have expertise in, or
an academic background in, public finance and who shall be economically
diverse and bipartisan in political registration.
2. REQUEST the County Treasurer to return to the Internal Operations Committee on
December 18, 1995 with his nominations for the membership of the Oversight
Committee, as is provided for in Government Code Section 27131.
CONTINUED ON ATTACHMENT: YES SIGNATURE:
RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE
APPROVE BOTHER 44 IQ
SIGNATURES
M A Ke S AIER JIM ROGE S
ACTION OF BOARD ON APPROVED AS RECOMMENDED X OTHER
c
VOTE OF SUPERVISORS
I HEREBY CERTIFY THAT THIS IS A TRUE
_X UNANIMOUS(ABSENT n nn P ) AND CORRECT COPY OF AN ACTION TAKEN
AYES: NOES: AND ENTERED ON THE MINUTES OF THE BOARD
ABSENT: ABSTAIN: OF SUPERVISORS ON THE DATE SHOWN.
ATTESTED November 14, 1995
Contact: PHIL BATCHELOR,CLERK OF THE BOARD OF
CC: SUPERVISORS AND COUNTY ADMINISTRATOR
See Page 3
BY DEPUTY
Y 1.0.-4
3. REFER to the Internal Operations Committee the question of the "prudent investor"
standard of conduct for members of the Board of Supervisors imposed by SB 866
with a request that the Committee make further recommendations to the Board of
Supervisors regarding what actions the Board might take in this regard.
BACKGROUND:
On April 11, 1995, the Board of Supervisors referred to our Committee the report from the
Treasurer-Tax Collector, Al Lomeli, regarding the formation of an Investment Oversight
Committee. Our Committee was asked to report on issues including membership
composition and reporting procedures.
We have intentionally waited until the Legislature adjourned and the Governor had
disposed of all legislation to see what requirements the Legislature might place on
counties having to do with Investment Oversight committees. The Legislature passed and
the Governor signed two bills having to do with an Investment Oversight Committee and
the Treasurer's reporting requirements. Copies of the bills and staff's summary of the
provisions are attached.
SB 866 requires the appointment of a County Treasury Oversight Committee. The Board
of Supervisors, in consultation with the County Treasurer, is to determine the exact size
and composition of the Oversight Committee, subject to the following conditions. The
members are to be nominated by the Treasurer and confirmed by the Board of
Supervisors. The Oversight Committee may have no fewer than three members and no
more than 11 members. Seven categories are identified from which members of the
Oversight Committee are to be drawn:
1. The County Treasurer.
2. The Auditor-Controller.
3. A representative appointed by the Board of Supervisors.
4. The County Superintendent of Schools or his or her designee.
5. A representative selected by a majority of the presiding officers of the governing
bodies of the school districts and the community college district in the County.
6. A representative selected by a majority of the presiding officers of the legislative
bodies of the special districts in the County that are required or authorized to
deposit funds in the County Treasury.
7. Up to five members of the public, a majority of whom shall have expertise in, or an
academic background in, public finance and who shall be economically diverse and
bipartisan in political registration.
Additional restrictions on the members of the Oversight Committee are that a member may
not:
✓ Be employed by an entity that has contributed to the reelection campaign of the
County Treasurer or a member of the Board of Supervisors in the previous three
years.
✓ Directly or indirectly raise money for the County Treasurer or a member of the
Board of Supervisors while a member of the Oversight Committee.
✓ Secure employment with bond underwriters, bond counsel, security brokerages or
dealers or with financial services firms for three years after leaving the Oversight
Committee.
-2-
1.0A
Meetings of the Oversight Committee are open to the public and are subject to the Ralph
M. Brown Act.
In addition to the reporting required by SB 564, SB 866 requires the Treasurer to prepare
annually an investment policy that will be reviewed and monitored by the Oversight
Committee. The bill outlines the content of the investment policy.
SB 866 requires that the Board of Supervisors, in consultation with the County Treasurer,
determine the exact size of the Oversight Committee and the categories from which the
members shall be represented. Members are then to be nominated by the County
Treasurer and confirmed by the Board of Supervisors.
Our Committee met on November 6, 1995 with the County Administrator, County Auditor-
Controller, County Treasurer-Tax Collector, and County Counsel to determine the exact
size of the Oversight Committee and the categories from which the members shall be
represented. After careful review of the new law and thorough discussion of various
factors, our Committee and the County Treasurer are in agreement on the above size and
composition of the County Treasury Oversight Committee.
We are now asking the County Treasurer, with whatever assistance he wishes to have
from the County Administrator's Office, to contact the necessary jurisdictions for their
nominees and advertise broadly for the public members and return to our Committee on
December 18, 1995 with his recommendations for the membership of the Oversight
Committee.
Since the legislation does not become effective until January 1, 1996, we believe that it
is neither wise nor appropriate for the Board of Supervisors to finally decide the size,
composition or membership of the Oversight Committee until after the legislation becomes
effective. However, with agreement in principle now, we can be in a position to fix the size,
composition and membership of the Oversight Committee and make the actual
appointments at our first meeting in January, 1996.
The restrictions on the members or former members of the Oversight Committee, as
identified above, are such that many individuals will not be willing to serve on the
Oversight Committee. This is the case with the current County Treasurer and Auditor-
Controller, neither of whom is willing to risk his possible future association with the private
sector simply to serve on the Oversight Committee. While the Board of Supervisors has
one representative on the Committee and presumably could appoint one of its members
to the Oversight Committee, it appears unlikely that any member of the Board who is
running for reelection or is planning to run for reelection could comply with the restriction
in Government Code Section 27132.2, which reads as follows:
A member [of the Oversight Committee] may not directly or indirectly
raise money for the county treasurer or a member of the board of
supervisors while a member of the committee. (Emphasis added)
County Counsel Vic Westman commented on other provisions of SB 866 which appear to
increase the liability of members of the Board of Supervisors by placing a "prudent
investor" standard on the members of the Board of Supervisors, although the Board can
delegate all investment responsibility to the County Treasurer and thereby eliminate this
additional liability. Since this subject was not specifically noticed on our Committee's
agenda, we have suggested that this portion of SB 866 be referred, to the Internal
Operations Committee for further consideration and recommendation to the Board of
Supervisors.
cc: County Administrator
Treasurer-Tax Collector
Auditor-Controller
County Counsel
-3-
z
CONTRA COSTA COUNTY
TREASURER-TAX COLLECTOR
625 Court Street, Room 100-102
Martinez, CA 94553
DATE: October 30, 1995
TO: Internal Operations Committee
Supervisor Mark De Saulnier, District 4
Supervisor Jim Rogers, District 1
FROM: Alfred P. Lomeli, Treasurer-Tax Collector
SUBJECT: CONSIDER COMPOSITION OF COUNTY INVESTMENT
OVERSIGHT COMMITTEE
In accordance with SB 866, Chapter 784, we are meeting to determine the exact size and
composition for an Oversight Committee for the treasury. The Oversight Committee may
have no fewer than three members and no more than 11 members. Seven categories
are identified from which members of the Oversight Committee are to be drawn:
1. The County Treasurer.
2. The Auditor-Controller.
3. A representative appointed by the Board of Supervisors.
4. The County Superintendent of Schools or his or her designee.
5. A representative selected by a majority of the presiding officers of the
legislative bodies of the special districts in the County that are required or
authorized to deposit funds in the County Treasury.
6. A representative selected by a majority of the presiding officers of the
legislative bodies of the special districts in the County that are required or
authorized to deposit funds in the County Treasury.
7. Up to five members of the public, a majority of whom shall have expertise
in, or an academic background in, public finance and who shall be
economically diverse and bipartisan in political registration.
SB 866 Section 27132 states that members shall be nominated by the Treasurer and
confirmed by the Board of Supervisors.
At this meeting, I am unable to make any recommendations because of the requirements
of sections 5, 6 and 7 above. Also, listed below are three sections that severely limits my
ability to make any recommendations. They are:
Section 27132.1 - "A member may not be employed by an entity that has
contributed to a reelection campaign of the local treasurer or a member of
the legislative body of the local agency in the previous three years."
Section 27132.2 -"A member may not directly or indirectly raise'money for
the County Treasurer or a member of the Board of Supervisors while a
member of the committee."
Section 27132.3 - "A member may not secure employment with bond
underwriters, bond counsel, security brokerages or dealers, or with financial
services firms for three years after leaving the committee."
In forming the committee, it is important to note the following:
27137 - "Nothing in this article shall be construed to allow the County
Treasury Oversight Committee to direct individual investment decisions,
select individual investment advisors, brokers, or dealers, or impinge on the
day-today operations of the County Treasury."
Another matter that needs to be considered is the compensation for members of this
committee and the schedule of future meetings.
Attached for reference and information is the Board Order approved as a result of our
March 14, 1995 presentation.
APL:gm
Attachment
BOARD OF SUPERVISORS ('`ten+ra
Alfred P. Lomeli, Costa
Treasurer-Tax Collector ,
DATE: April 11, 1995
County
Tr,-�-'N•ti
SUBJECT: INVFSTMEN'T OVERSIGHT COMMITTEE
SPECIFIC REOUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION
RECOMMENDATION:
1. Establish an Investment Oversight Committee (IOC) for the purposes of:
+ reviewing the County's Investment Policy;
• regularly monitoring the County Investment Pool's performance; and
• reporting on the pool's performance to the Board of Supervisors.
2. Constitute the Investment Oversight Committee of seven members with the Treasurer, County
Administrator, Auditor-Controller, and County Counsel serving as ex-officio members. The fifth
member shall be a representative of the County Board of Supervisors, or if a representative of
the Board is not available, the Board shall appoint or hire a Certified Financial Advisor. The sixth
and seventh members shall be representatives of entities that invest their funds in the Pool.
BACKGROUND:
On December 6, 1994, the Board of Supervisors requested a workshop on the county investment
policies be scheduled. On March 14, 1995, the County Treasurer presented a workshop on the
County's Investment Pool. During the workshop, the past investment policies and practices of the
County, the current investment portfolio and revised interim investment strategies and policies were
discussed. Various exhibits, tables; news articles and other pertinent information were provided-to
illustrate, analyze and explain the safety and, integrity of the portfolio of Contra Costa County's
Investment Pool.
CONTINUED ON ATTACHMENT: X YES SIGNATURE:
RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD'COMMITTEE
APPROVE OTHER
SIGNATURE(S):
ACTION OF BOARD ON APR 1I F, ' APPROVED AS RECOMMENDED OTHER
r_ EXPRESSED support for the concept of the establishment of an Investment
Oversight Committee; REFERRED the matter to the Internal Operations
CDmmittee for review and report on issues including membership
composition and reporting procedure.
VOTE OF SUPERVISORS
I HEREBY CERTIFY THAT THIS IS A TRUE
UNANIMOUS(ABSENT AND CORRECT COPY OF AN ACTION TAKEN
y AYES: NOES: AND ENTERED ON THE MINUTES OF THE BOARD
ABSENT: ABSTAIN: OF SUPERVISORS ON THE DATE SHOWN.
Media Contact: Alfred P. Lomeli (646-4125) n
CC: CAO ATTESTED APR U 19%
County Auditor-Controller PHIL BATCHELOR,CLERK OF THE BOARD OF
County Counsel SUPERVISORS AND COUNTY ADMINISTRATOR
Treasurer-Tax Collector
M382 (10/88)
BY LZU DEPUTY
REASON FOR RECOMMENDATION:
Due to the Orange County bankruptcy and the impact on the other 57 California counties, the County
Treasurer, the State Legislature and the California Association of County Treasurers and Tax Collectors
recommend the formation of county oversight committees. The committees would be responsible for
adopting investment policies, conducting audits to ensure compliance, determining appropriate
investment broker and dealer relationships, defining how public entities outside the jurisdiction of the
county treasury could or could not participate in the pool, and governing the withdrawal from the county
pools of monies by local governments for investment purposes.
-- --- ---
OFFICE OF THE COUNTY ADMINISTRATOR
CONTRA COSTA COUNTY
Administration Building
659 Pine Street, 11th Floor
Martinez, CA 94553
DATE: October 30, 1995
TO: Alfred P. Lomeli, Treas prer-Tax Collector
FROM: Claude L. Van Mart A stant County Administrator
SUBJECT: LEGISLATION AFF TING FORMATION OF AN INVESTMENT
OVERSIGHT COMMITTEE AND REPORTING REQUIREMENTS
As you know, you have been asked to report to the Internal Operations Committee on
Monday, November 6, 1995 on the formation of an Investment Oversight Committee.
Attached for your information are two pieces of legislation which were enacted by the
Legislature this year which bear on this subject SB 564 (Chapter 783, Statutes of 1995)
and SB 866 (Chapter 784, Statutes of 1995).. Both of these bills become effective January
1, 1996.
SB 564 imposes additional reporting requirements on you in terms of an annual report to
the Board of Supervisors and the Investment Oversight Committee on investment policy.
In addition, you are required to provide a quarterly report to-the Board of Supervisors, the
County Administrator and the "internal auditor", which we understand to be the Auditor-
Controller's internal audit unit. This quarterly report is to be submitted within 30 days of
the end of the quarter and include the following:
�r For each security, investment and money held by the agency:.
V the type of investment
%/ the issuer
V the date of maturity, and
V the par and dollar amount;
A description of any of the agency's funds, investments or programs that are under
management of any outside party, including lending programs;
For each security held by the agency, but under the management of any outside
party that is not also a local agency or the State's Local Agency Investment Fund:
✓ the current market value of the security, and
✓ the source of the valuation report;
A statement of compliance of the portfolio to the statement of investment policy, or
the manner in which the portfolio is not in compliance;
A statement of the ability of the agency to meet its pool's expenditure requirements
for the next six months,or to provide an explanation as to why sufficient money may
not be available;
Any additional information required by the Board of Supervisors.
At the discretion of the Board of Supervisors, this quarterly report may be required to be
made on a monthly basis instead of a quarterly basis.
SB 866 does all of the following:
Authorizes the Board of Supervisors to delegate to you the authority to invest or
reinvest the funds of the County and the funds of other depositors in the County
Treasury. If this is done, you would then be required to assume full responsibility
for those investments;
Specifies that you are a trustee and a fiduciary subject to the prudent investor
standard and defines what this means.'
Requires a local agency that decides'..to purchase or obtain a security for
investment to require delivery of the security by book entry, physical delivery, or
third-party custodial agreement.
Restricts the repurchase and reverse repurchase agreements that may be invested
in.
Prohibits investment in inverse floaters, range notes, interest-only strips that are
derived from a pool of mortgages, or any security that could result in zero interest
accrual if held to maturity.
Prohibits the proceeds of sales or funds set aside for the repayment of any notes
issued to be invested for a term that exceeds the term of the notes.
2
Modifies the provisions of law regarding the qualifications of persons elected or
appointed as County Auditor, including incorporating the provisions of Chapter 107,
Statutes of 1995.
Authorizes the Board of Supervisors to establish the office of Director of Finance,
subject to voter approval and to include at the same election the question whether
the Director of Finance should be elected or appointed.
Authorizes the Board of Supervisors to enact an ordinance adopting certain
qualifications for any individual elected or appointed to the office of County
Treasurer after January 1, 1998 to and continuing education requirements
applicable to persons elected to the office of County Treasurer after January 1,
1996 or appointed to the office on and after January 1, 2000.
In addition, SB 866 requires the appointment of a County Treasury Oversight Committee.
The Board of Supervisors, in consultation with the County Treasurer, is to determine the
exact size and composition of the Oversight Committee, subject to the following conditions.
The members are to be nominated by the Treasurer and confirmed by the Board of
Supervisors. The Oversight Committee may have no fewer than three members and no
more than 11 members. Seven categories are identified from which members of the
Oversight Committee are to be drawn:
1. The County Treasurer
2. The A6ditor-Controller
3. A representative appointed by the.Board of Supervisors
4. The County Superintendent of Schools or his or her designee
5. A representative selected:by a majority of the presiding officers-of the governing
bodies of theschool districts and the community college district in the County.
6. A representative selected by a majority of the presiding officers of the legislative
bodies of the special districts in the County that are required or authorized to
deposit funds in, the County Treasury.
7. Up to five members of the public, a majority of whom shall have expertise in, or an
academic background in, public finance and who shall be economically diverse and
bipartisan in political registration.
3
Additional restrictions on the members of the Oversight Committee are that a member may
not:
✓ Be employed by an entity that has contributed to the reelection campaign of the
County Treasurer or a member of the Board of Supervisors in the previous three
years.
✓ Directly or indirectly raise money for the County Treasurer or a member of the
Board of Supervisors while a member of the Oversight Committee.
✓ Secure employment with bond underwriters, bond counsel, security brokerages or
dealers or with financial services firms for three years after leaving the Oversight
Committee.
Meetings of the Oversight Committee are open to the public and are subject to the Ralph
M. Brown Act.
In addition to the reporting required by SB 564, SB 866 requires the Treasurer to prepare
annually an investment policy that will be reviewed and monitored by the Oversight
Committee. The bill outlines the content of the investment policy. [See Government Code
Section 27133, beginning near the bottom of page 7 of the attached copy of SB 866 and
continuing through most of page 8].
The Oversight Committee is to cause an annual audit to be conducted to determine the
Treasury's compliance with the provisions of this legislation. The audit can also include
issues relating to the structure of the investment portfolio and risk.
Please take these two pieces of legislation into account in preparing your report to the
Internal Operations Committee for Monday, November 6, 1995. We would appreciate
having your report on Wednesday, November 1, 1995 so we can include it in the
Committee's packet for their November 6, 1995 meeting. We look forward to seeing you
at 8:00 A.M. next Monday at the Public Works Department Conference Room on Glacier
Drive.
CLVM:amb
Van10-44-95
Attachment
cc: Supervisor Mark DeSaulnier
Supervisor Jim Rogers
Phil Batchelor, County Administrator
Kenneth J. Corcoran, Auditor-Controller
Victor J. Westman, County Counsel
4
Senate Bill No. 564
CHAPTER 783
An act to add Section 16481.2 to, and to repeal and add Section
53646 of, the Government Code, relating to government agency
investments.
[Approved by Governor October 12, 1995. Filed
with Secretary of State October 12, 1995.]
LEGISLATIVE:COUNSEL'S DIGEST
SB 564,Johnston. Local agency treasurers.
Existing law requires the Treasurer to make a monthly report on
investments in the Pooled Money Investment Account.
This bill would require the Treasurer to annually prepare and
submit to the Pooled Money Investment Board a written statement
of investment policy and a quarterly report on investments in the
Pooled Money Investment Account, as specified.
Existing law provides that 'the treasurer of a local agency may
render to the depositary and to the auditor, controller, secretary, or
corresponding officer of the local agency a statement showing the
amount of accrued interest for each depositary for the preceding
quarter if so required by the legislative body of the local agency.
This bill would instead require the treasurer or chief fiscal officer
to render to the legislative body of the local agency and any oversight
committee a statement of investment policy. The report would be
required to be made annually and be considered, with any changes,
by the legislative body of the local agency at a public meeting.
This bill would also require the treasurer or chief fiscal officer,
except in specified circumstances,to render a quarterly report to the
_ chief executive officer, the internal auditor, and the legislative body
' of the local agency containing detailed information on all securities,
`'''`"° investments, and moneys of the local agency, a statement of
compliance of the portfolio with the statement of investment policy,
and a statement of the local agency's ability to meet its pool's
expenditure requirements for the next 6 months. By requiring these
reports to be made this bill would impose a state-mandated local
program. The bill would require the treasurer or chief fiscal officer
to report whatever additional information or data may be required
by the legislative body of the local agency.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the state.
Statutory provisions establish procedures for making that
reimbursement, including the creation of a State Mandates Claims
Fund to pay the costs of mandates that do not exceed $1,000,000
91
-------------------
Ch., 783 — 2 —
statewide
2 —statewide and other procedures for claims whose statewide costs
exceed $1,000,000.
This bill would provide that, if the Commission on State Mandates
determines that the bill contains costs mandated by the state,
reimbursement for those costs shall be made pursuant to these
statutory provisions.
The people of the State of California do enact as follows.
SECTION 1. Section 16481.2 is added to the Government Code,
to read:
16481.2. (a) The Treasurer shall annually prepare and submit to
the Pooled Money Investment Board a written statement of
investment.policy. The Treasurer shall promptly notify.the board of
any material change in the statement of investment policy. The
board shall consider the statement of investment policy and any
changes therein at a public meeting.
(b) In addition to the report required by Section 16480.7, the
Treasurer shall submit a quarterly report to the Pooled Money
Investment Board within 30 days following the end of the quarter
covered by the report containing the following:
(1). The type of investment, name of the issuer, date of maturity,
par and dollar amount invested in each security, investment, and
money within the treasury.
(2) The weighted average maturity of the investments within the
treasury. ,
(3) Any funds,investments,or programs,including loans, that are
under the management of contracted parties. .
(4) The market value as of the date of the report, and the source
of this valuation for any security within the treasury.
(5) A description of the compliance .with the statement of
.investment policy.
(c) The board may, by resolution,require the treasurer to report
the information required in subdivision (b) every month rather than
quarterly.
SEC. 2. Section 53646 of the Government Code is repealed.
SEC. 3. Section 53646 is added to the Government Code, to read:
53646. (a) .The treasurer or chief fiscal officer shall annually
render to the legislative body of the local agency and any oversight
committee a statement of investment policy, which the legislative
body of the local agency shall consider at a public meeting. Any
changes in the policy shall also be considered by the legislative body
of the local agency at a public meeting.
(b) (1) The treasurer or chief fiscal officer shall render a
quarterly report to the chief executive officer, the internal auditor,
and the legislative body of the local agency. The quarterly report
shall be so submitted within 30 days following the end of the quarter
91
- 3 — Ch. 783
is covered by the report. Except as provided in subdivision (e), this
report shall include the type of investment, issuer, date of maturity
Is par and dollar amount invested on all securities, investments and
�1 moneys held by the local agency, and shall additionally include .a
e description of any of the local agency's funds, investments, or
programs, that are under the management of contracted parties,
including lending programs.With respect to all securities held by the
local agency, and under management of any outside party that is not
also a local agency or the State of California Local Agency Investment
Fund, the report shall also include a current market value as of the
date of the report,and shall include the source of this same valuation.
(2) The quarterly report shall state compliance of the portfolio to
f the statement of investment policy,or manner in which the portfolio
-f is not in compliance.
(3) The quarterly report shall include a statement denoting the
ability of the local agency to meet its pool's expenditure
requirements for the next six months, or provide an explanation as
to why sufficient money shall, or may, not be available.
(4) In the quarterly report,a subsidiary ledger of investments may
be used in accordance with accepted accounting practices.
(c) Pursuant to subdivision (b),the treasurer or chief fiscal officer
shall report whatever additional information or data may be required
by the legislative body of the local agency.
(d) The legislative body of a local agency may elect to require the
report specified In subdivision (b) to be made on a monthly basis
instead of quarterly.
(e) If a local agency has placed all of its investments in the Local
Agency Investment Fund, created by Section 16429.1,, or in Federal
Deposit Insurance Corporation-insured accounts in a bank or savings
and loan association.,in a county investment pool,or any combination
of these, the treasurer or chief fiscal officer may supply to the
governing body, chief executive officer, and the auditor of the local
agency the most recent statement or statements received by the local
agency from these institutions in lieu of the information required by
paragraph (1) of subdivision (b).
SEC.4. Notwithstanding Section 17610 of the Government Code,
if the Commission on State Mandates determines that this act
contains costs mandated by the state, reimbursement to local
agencies and school districts for those costs shall be made pursuant
to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of
the Government Code. If the statewide cost of the claim for
reimbursement does not exceed one million dollars ($1,000,000),
reimbursement shall be made from the State Mandates Claims Fund.
Notwithstanding Section 17580 of the Government Code, unless
otherwise specified, the provisions of this act shall become operative
91
Ch. 783
on the same date that the act takes effect pursuant to the California
Constitution.
O
91
Senate Bill No. 866
CHAPTER 784
An act to amend Sections 26945, 26980, 53601, 53635, and 53859.02
of, to add Sections 27000.1, 27000.3, 27000.5, 27000.6, 27000.7, 27000.8,
27000.9, 53600.3, 53600.5, 53600.6, 53601.6, 53630.1, 53631.5, 53821.5,
53841.5, and 53852.5 to, and to add Article 6 (commencing with
Section 27130) to Chapter 5 of Division 2 of Title 3 of, the
Government Code, relating to local government.
[Approved by Governor October 12, 1995. Filed .
with Secretary of State October 19, 1995.]
LEGISLATIVE COUNSEL'S DIGEST
SB 866, Craven. Local government.
(1) Existing law specifies the duties of the county treasurer with
respect to the investment of funds in the county treasury.
This bill would authorize the board of supervisors to delegate to the
county.treasurer the authority to invest or reinvest the.funds of the
county and the funds of other depositors in the county treasury. The
county treasurer would then be required to assume full responsibility
?' for those transactions. The. -bill would specify that the county
treasurer is a.trustee and a fiduciary subject to the prudent investor
standard,as specified,and would specify the objectives for investing,
reinvesting, purchasing; acquiring, exchanging, selling, . .and
managing public funds. The bill..would apply the same..standards.to
other local officials and governing bodies investing public funds.
The bill would also require.the board of supervisors in each county
or city and county that is investing surplus-funds to establish a county
treasury oversight committee with specified membership who meet
certain qualifications.The bill would require the county treasurer,in
any county that establishes the committee, to annually:prepare an
investment policy with prescribed-contents,that would be reviewed
r'
and.monitored by the cominittee and;woul'd require-,the committee`
to conduct an annual audit to determine the county treasury's
compliance with the.policy. The bill would require.approval.of the
county treasurer to withdraw funds to invest outside the county
treasury pool.
(2) Under existing law, the legislative body of a local agency
having,money in a sinking fund of, or surplus.money in, its treasury
not required for the immediate necessity of the local agency, may
invest the funds in any of several specified investments, including
repurchase agreements and reverse repurchase agreements.
This bill would require a local agency that decides to purchase or
obtain a security for investment under these provisions to require
94
}
Ch. 784 — 2 —
delivery
2 —delivery of the security to the local agency by book entry, physical
delivery, or third-party custodial agreement. The bill would also
restrict the repurchase and reverse repurchase agreements that may
be invested in under these provisions and would prohibit investment
in inverse-floaters, range notes, interest-only strips that are derived
from a pool of mortgages, or any security that could result in zero
interest accrual if held to maturity, except-as specified.
(3) Existing law authorizes a local agency, as defined, to
temporarily borrow funds subject to specified conditions and to issue
notes and grant anticipation notes in order to borrow money, as
specified.
This bill would specify that the proceeds of sales or funds set aside,
for the repayment of any notes issued in these circumstances shall not
be invested for a term''that exceeds the term of the notes. "
(4) Existing law.sets forth,the qualifications required off-a person
appointed or elected county auditor. Among other things,.a person
may be appointed or elected.pursuant to -these:provisions if that
person possesses a valid certificate or diploma of graduation from a
school of accountancy, or has served as county auditor or deputy
county auditor for a continuous period of not less than 3 years.
This bill would incorporate -changes to this provision-made: by
Chapter 107 of the Statutes of 1995 to provide that a person may be
appointed or elected ,pursuant to these provisions if.he :.or she
possesses.a baccalaureate degree from an accredited university,
college, or,other,4-year institution, with a major in accounting or its
equivalent. .It would"provide:that a person may, be appointed or
elected if he or she has served as county auditor,chief deputy county
auditor, or chief assistant'county auditor for a continuous period of .
not less"than:3 pears.
The bill would.also.add persons who-possess a certificate issued by .
the._institute of internal ''auditors, with a minimum of 16" college
semester units, .or :their equivalent, In accounting, auditing, and
financing among.the persons`who maybe elected or appointed to the
office of county auditor.
(5) Existing,law authorizes the"county board .of supervisors to
establish the',office of"director of finance subject to voter`approval.
The question of whetherthe office,if established,shall be elective or
appointed by the board may also, be "submitted to the voters at the
swine election.
This bill would provide that any person may be appointed by the
board of supervisors,or be a candidate for election,to the office of the
director of finance, consolidated from other offices pursuant to
existing law,if he or she meets the qualifications for the office of the
director of finance.
(6) Existing law does not specify qualifications of county treasurer.
This bill would authorize a county board of supervisors to.enact an
ordinance adopting certain qualifications applicable to persons
94
I
-3 — Ch. 784
appointed or elected after January 1, 1998, and continuing education
} requirements applicable to persons elected after January 1, 1996, or
appointed and serving on or after the year 2000, for the office of
county treasurer, county .tax collector, or county treasurer-tax
1 collector.
y The people of the State of California do enact as follows.
} SECTION 1, Section 26945 of the Government Code is amended
to read:
26945. No person shall hereafter be elected or appointed to the
office of county auditor of any county unless the person meets at least
one of the following criteria:
(a) The person possesses a valid certificate issued by the California
State Board of Accountancy under. Chapter 1 (commencing.with
Section 5000) of'Division 3 of the. Business and Professions Code
showing the person.to be, and a permit authorizing the person to
practice as, a certified public accountant or as a public accountant.
(b) The person possesses a baccalaureate degree from an
accredited university,college, or other four-year institution, with a
major in accounting or its equivalent, as described in subdivision (a)
of Section 5081.1 of the Business and Professions Code.
(c) The person possesses a certificate' issued by the Institute of
Internal Auditors showing the person to be,a designated professional
internal auditor, with a-minimum. of 16:college semester units, or
their equivalent, in accounting, auditing, or finance.
(d). 'The.person has served as county auditor, chief deputy county
auditor-; or chief assistant county auditor for a continuous period of
not less than three years.
SEC. 2.. Section.26980 .of the Government Code is amended to
read . ..
26980.: The.board of supervisors of any county may. establish the
office of`director of finance
(a} The board of,
supervisors;shall submit to. the electors of the
county,`thequestion of whether.the office of director of finance shall
be established..If,a majority of the voters voting on the question at
that .election favor. the establishment of the office, the board of
supervisors shall,by ordinance, create the office.
(b) The board of supervisors at that election may also submit to
the voters the question of whether the office, if so established, shall
be elective,or appointed by the board of supervisors. If a majority of
the voters voting on the question favor making the office elective,the
board of supervisors shall,in the ordinance creating the office, make
it an elective one.
(c) Any person may be appointed by the board of supervisors, or
be a candidate for election, to the office of director of finance,
i
t
94
I
Ch. 784 — 4 —
consolidated
4 —consolidated from other offices pursuant to this chapter, if he or she
meets the qualifications set forth in Section 26945 or Section 27000.7.
SEC. 3. Section 27000.1 is added to the Government Code, to
read:
27000.1. The board of supervisors may, by ordinance, delegate to
the county treasurer the authority to invest or reinvest the funds of
the county and the funds of other depositors in the county treasury,
pursuant to Chapter 4 (commencing with Section 53600) of Part 1 of
Division 2 of Title 5.The county treasurershall thereafter assume full
responsibility for those transactions until theboard of supervisors,by
ordinance,revokes its delegation of authority.Nothing in this section
shall limit the county treasurer's authority pursuant to Section 53635
or 53684.
SEC. .4. Section 27000.3.is added to the Government Code, to
read:
27000.3. The, county treasurer 'is a trustee and therefore a
fiduciary subject to the prudent investor standard. When investing,
reinvesting, purchasing, acquiring, exchanging, selling, and
managing public funds,the county treasurer shall act with care,skill,
prudence, and diligence under the circ m
ustances then prevailing,
that a prudent person acting in alike capacity and familiarity with
those matters would use in the conduct of funds of a like character
and with. like aims, to safeguard the principal and maintain the
liquidity,needs of the county and the other depositors. Within the
limitations of this section and considering individual investments as
part of an overall investment strategy, a trustee is authorized to
acquire investments as authorized by law. Nothing in this chapter is
intended.to'grant.investment authority oto any.person or governing
body except as provided in Sections.53601, 53607, and 53635. ,
SEC. 5, Section 27000.5 is added to'the Government Code, to
read:
27000.5. When investing, reinvesting, purchasing, acquiring,
exchanging, tilling; and. managing public .funds, the primary
objective of the county treasurer.shall be'to safeguard the principal
ofthe under his br.her::control:The secondary objective shall
be to meet the liquidity needs of the,depositor. The third objective
shall be to achieve a return on the funds under his or her control.
SEC. 6. Section 27000.6 is added to the Government Code, to
read:
27000.6. The provisions.of Sections 27000.7,27000.8, and 27000.9
shall become effective only in those.counties in which, prior to the
first date of the period for filing declarations of candidacy for the.
office of county treasurer, county tax collector, or county
treasurer-tax collector, the board of supervisors by majority vote at
a regular meeting with all members present, enact an ordinance
adopting the provisions.of those. sections. That ordinance may be
repealed by the board of supervisors at any time.
94
- 5 — Ch. 784
e SEC. 7. Section 27000.7 is added to the Government Code, to
read:
0 27000.7. (a) No person shall be eligible for election or
appointment to.the.office of county treasurer, county tax collector,
0 or county treasurer-tax collector of any county unless that person
,f meets at least one of the following criteria:
(1) The person has served in a senior financial management
f position in a county, city,or other public agency dealing with similar
1 financial responsibilities for a continuous period of not less than three
years, including, but not limited to, treasurer, tax collector, auditor,
1 auditor-controller,or.the chief deputy or an assistant in those offices.
(2) The person possesses a valid 'baccalaureate, masters, or
doctoral'degree from an accredited college or university in any of the
following major, fields of study: business administration, .public
administration, economics, finance, accounting, ora related field,
i with a minimum of 16 college,semester units, or their equivalent, in
accounting, auditing,or finance.
i (3) The person possesses a valid certificate issued by the California
State Board of Accounting pursuant to Chapter 1 (commencing with
Section 5000) of Division 3 of the Business and Professions -Code,.
! showing that person to be, and a permit authorizing that person to
practice as, a certified public accountant.
(4) The person possesses a valid charter issued by the Institute of
Chartered-Financial Analysts showing the person to be designated a
Chartered Financial Analyst,with a minimum of 16 college semester.
units, or their,equivalent,,in accounting, auditing, or,finance.
(5): The person possesses a valid ,certificate issued by. the.
Treasuring Management .Association showing the _person; to be
designated a Certified Cash Manager; with a minimum of 16 college
semester. units, or their equivalent, in accounting, auditing, .or
finance.
(b) This section shall only apply to any person duly elected or
appointed as a county treasurer, county tax collector, or county .
treasurer-tax collector on or after January 1, 1998.
SEC. 8. Section`27000.8 is added.to the Government Code, to
read:
27000.8. Any duly elected county treasurer,.county tax collector,
or county treasurer-tax collector serving in that office on January 1,
1996,may serve for his or her remaining term of office during which
l_ period of time the requirements of this section shall not apply. After
i the election of a county treasurer, county tax collector, or county
treasurer-tax collector to office, that person shall complete a valid
continuing course of study as prescribed in this section, and shall
during the person's four-year term of office on or before June 30 of
the fourth year, render to. the State Controller a certification
i indicating that the person has successfully completed a continuing
education program consisting of, at a minimum, 48 hours, or an
94
Ch. 784 — 6 —
equivalent
6 —equivalent amount of continuing education units within the
discipline of treasury management or public finance or both,offered
by a recognized state or national association, institute, or accredited
college or university,. that provides the requisite educational
• programs prescribed in this section. The willful or negligent failure
of any elected county treasurer, county tax collector, or county
treasurer-tax collector to comply with the requirements of this
section shall be deemed a violation of this section.
SEC. 9. Section 27000.9 is added to the Government Code, to
read:
27000.9. Notwithstanding any other requirement of law,any duly
appointed county officer serving in the capacity of county treasurer,
county tax collector, or county treasurer-tax collector shall,
beginning in-2000, complete a valid continuing course of study as
prescribed in this section, and shall, on or before June .30 of each
two-year period, render to the State Controller, a certification
indicating that the county officer has successfully completed a
continuing education program consisting of, at a minimum;24 hours
or an equivalent amount of continuing education units within the
discipline of treasury management or public finance,or both offered
by a recognized state or national association,institute, or accredited
college or university, that -provides the requisite educational
programs prescribed in this section. The willful or negligent failure
of any county officer serving in the capacity of county treasurer,
county,tax collector,or county treasurer-tax collector to comply with
the requirements of this section shall be deemed a violation of this
section.
SEC. 10. Article 6 (conunencing with Section 27130) is added to
Chapter 5 of Division 2 of Title 3 of the Government Code, to read:
Article 6. County Treasury Oversight Committees
27130: 'The .Legislature farads'anii declares that;local agencies,
1 including school.districts,should participate in reviewing the policies
that guide the.investment of those funds.".The Legislature further
finds and declares that by pooling deposits from local agencies and
other participants, county treasuries operate in the public interest
when they consolidate banking and investment activities, reduce,
.
duplication, achieve.economies of scale, and carry out coherent and
consolidated investment strategies.The Legislature further finds and
declares that the creation of county treasury oversight committees
will promote the` public interest by involving .depositors in the
management of their funds and by enhancing the security and
investment return on their funds by providing a more stable and
predictable balance for investment by establishing criteria for the
withdrawal of funds.
94
Y4 _ _ ,,,�....,,....-,.v✓.,a.r,.+�..a •ns:rau-- �c`.xv.ief - Boz,._.r:,.r:.c:ueu.;.::.:........:....
Ch. 784
27131. The board of supervisors in each county and city and
1 county shall, if the county or city and county is investing surplus
funds,establish a county treasury oversight committee. The board of
l supervisors, in consultation with the county treasurer, shall
determine the exact size of the committee,which shall consist of from
3 to 11 members, and the categories from which the members shall
be represented, as specified in subdivisions (a) to (g), inclusive, of
Section 27132. Members shall be nominated.by the treasurer and
confirmed by the board of supervisors.
27132. .. The county treasury oversight committee, pursuant to
Section 27131,shall consist of members appointed from the following:
(a) The county treasurer.
' (b) ,The county auditor,auditor-controller,or finance director, as
' the case
(c). A ,representative appointed. by, the county board of
supervisors .
(d) The county superintendent of schools or his or her designee.
(e) A representative. selected: by a majority of the presiding
officers of the governing bodies of the school districts and community
college districts in the county»
(f) A representative.selected by a majority of the presiding
officers of the legislative bodies of the special districts in the county
that are -required or authorized to- deposit-funds :in the county
treasury..
(g) Up to five other members of the:public.
- (1) ;A majority:of..the'other,pubhc members shall;have expertise
in,or an academic background in,public finance,
(2) The other public members shall be economically diverse and.
bipartisan n political registration.
27132x,. . .Amember:may not be employed by an entity that has
contributed to' a reelection campaign of-the local ._Measurer or a
Zmbeiof the legislative body ofahe local agency yin=.the.:previous
ee.years
27132;2 A. member;may not directly.or uidirectly::raise money for
the;county.:treasurer or=a•member of>the,board:of supervisorswhile
a member of the.committee.
27132:3: A member may, not secure employment with bond
underwriters,bond counsel, security-brokerages or dealers,:or with
financial services firms for three years after leaving the committee.
27132.4. Committee meetings shall be open to the public and
subject to the Ralph M. Brown Act (Chapter 9 (commencing with
Section 54950) of Part 1 of Division 2 of Title 5).-
27133. In any county that establishes a county treasury oversight
committee pursuant to this article, the county treasurer -shall
annually prepare an investment policy that will be reviewed and
monitored by the county treasury oversight committee. The
investment policy shall include all of the following:
94
1
Ch. 784 — 8 —
(a)
8 —(a) A list of securities or other instruments in which the county
treasury may invest, according to law, including the maximum
allowable percentage by type of security.
(b) The maximum term of any security purchased by the county
treasury.
(c) The criteria for selecting security brokers and dealers from,to,
or through whom the county treasury may purchase or sell securities
or other instruments. The criteria shall prohibit the selection of any
broker, brokerage, dealer, or securities firm that has, within any
consecutive 48-month period following January 1, 1996, made a
Political contribution in an amount exceeding the limitations
contained in Rule G-37 of the Municipal Securities Rulemaking
Board, to the local treasurer, any member of the-governing board of
the local agency, or any candidate forthose offices.
(d) Limits on the receipt of honoraria, gifts, and gratuities from
advisors, brokers, dealers, bankers, or other persons with whom the
county treasury.conducts business by anymember of the county
treasury oversight committee.These limits may be in addition to the
limits set by'a committee member's own agency, by-state law,or by
the Fair Political Practices Commission.
(e) A requirement that the county treasurer provide the county
treasury oversight committee with an investment report as required
by the board of supervisors:
(f) The manner of calculating and apportioning_ the costs,
authorized by Section '27013, of investing, depositing,. banking,
auditing,reporting,nor otherwise handling or managing funds
(g) The terms and -conditions under which local agencies and j
other entities that„are not required to deposit their fundsin the
county:treasury may deposit funds for investment purposes:
(h) Criteria forconsidering requests to withdraw funds from the
county treasury,`pursuant to Section 27136. The criteria shall include
anassessmentof the effect:of-a proposed withdrawal on the stability
and predictability of the investments in the.county treasury:
` 27134., The county treasury oversight committee shall cause an
annual audit to-be conducted to determine the` `coon tress 's
compliance with this article.The audit may include issues relating to
the structure of the investment portfolio and risk.
27135. . The costs of complying with this article shall be..county
.a
charges nd may be included with those charges enumerated under
Section 27013.
27136. (a) Notwithstanding any other provision of law, any local
agency, public agency, public entity, or public official that has funds
on deposit in the county treasury pool.and that seeks to withdraw
funds for the purpose of investing or depositing those funds outside
the county treasury pool,shall first submit the request for withdrawal
to the county treasurer before withdrawing funds from the county
treasury pool.
94
- 9— Ch. 784
(b) The county treasurer shall evaluate each proposed withdrawal
for its consistency with the criteria adopted pursuant to subdivision
(h) of Section 27133. Prior to ' approving or disapproving a
withdrawal, the county treasurer shall find that the proposed
withdrawal will not adversely .affect the interests of the other
depositors in the county treasury pool.
27137. Nothing in this article shall be construed to allow the
county treasury oversight committee to direct individual investment
decisions, select individual investment advisors, brokers, or dealers,
or.impinge on the day-to-day operations of the county treasury.
SEC. 11. Section 53600.3 is added to the Government Code, to
read:
53600.3. Governing bodies of local agencies or persons authorized
to make investment decisions on behalf-of those local agencies
investing,public funds pursuant to this chapter are trustees and
therefore fiduciaries subject to the prudent investor standard. When
investing, reinvesting,.purchasing; acquiring, exchanging, selling,
and. managing public funds, a trustee, shall act with care, skill,
prudence, and diligence under the circumstances then prevailing,
that a prudent person acting in a like capacity and familiarity with
those matters would use in the conduct of funds of a like character
and with like aims, to safeguard the principal and_maintain the
liquidity needs of the agency. Within the limitations of this section
and considering individual investments as part to an.overall strategy,
a trustee is authorized to acquire investments as authorized by law.
SEC: 12: Section 53600.5 is added to the Government Code,.to
read:
53600.5. When investing, reinvesting,. purchasing, acquiring,
°exchanging, selling, and managing public funds, the primary.
objective'of.a trustee shall be to safeguard.the principal of the funds
under its :control. The secondary objective shall be to meet 'the
liquidity needs of`the .depositor. The third objective _shall be to
achieve-a'return on the funds under its control.
SEC 13 Section 53600 6'is added to the Government Code, to
1 read
`53600:6. The Legislature hereby, finds that the solvency and
creditworthiness,of each individual local agency can impact the
solvency,and creditworthiness of the state and other local agencies
within the state. Therefore, to protect the solvency and
creditworthiness of the state and all of its political subdivisions, the
Legislature hereby declares that the deposit and investment of.
public funds by local officials and local agencies is an issue of
statewide concern.
SEC. 14. Section 53601 of the Government Code is amended to
read:
53601. The legislative body of a local agency having money in a
sinking fund of, or surplus money in,its treasury not required for the
94
_-
Ch. 784 — 10—
immediate
14—immediate necessities of the local agency may invest any portion of
the money that it deems wise or expedient in those investments set
forth below. A local agency purchasing or obtaining,any securities
prescribed in -this section, in a negotiable, bearer, registered, or
nonregistered format, shall require delivery of the securities to the
local agency, including those purchased for the agency by financial
advisors, consultants, or managers using the agency's funds, by book
entry, physical delivery, or by third party custodial agreement. The
transfer of securities to the counterparty bank's customer book entry
account may be used for book entry delivery. For purposes of this
section "counterparty" means the other party to the transaction. A
counterparty bank's trust department or separate safekeeping
department may be used for the physical delivery of the security if
the security is held in the name of the local agency.Where this section
does not specify,a limitation on,the term or remaining maturity at the.
time of the investment,no investment shall be made in any security,
other�than-a security underlying a repurchase or reverse repurchase
.agreement authorized by this section, that at the time of the
.investment has a term remaining to maturity in excess of five years,'
unless the.legislative body has granted express authority to make that
investment either specifically or as a part of an investment program
approved by the legislative body no less than three months prior to
" the investment:
(a) Bonds issued by the local agency, including bonds payable
solely out of,Ithe -revenues ,from a revenue-producing property .
owned, `controlled," or, operated by the- local agency , or by a
department, board, agency, or.authority of the local agency.
(b) United States Treasury notes, bonds, bills, or certificates of
indebtedness, or those.for which the faith and credit of the United
States are pledged for the payment of principal and interest.
(c) Registered state-warrants or treasury notes or bonds of this
state, including :bonds",,payable solely` out of;the revenues.from a
revenue-producing,property owned,.controlled, or operated by the
state or�by a department;board, agency, or authority of the state.
(d) Bonds,,notes,;warrants,or other evidences of,indebtedness of
any local agency withinthis'state,'including bonds payable solely out
of .the' revenues from a revenue-producing property owned,
controlled, or.operated by the local agency, or by a department,
board, agency, or authority of the local agency,
(e) Obligations .issued by banks for cooperatives, federal land
banks, federal intermediate credit banks, federal home loan banks,
the Federal Home Loan Bank Board, the Tennessee Valley
Authority,.or,in obligations, participations, or other instruments of,
or issued by, or fully guaranteed as to principal and interest by, the
Federal National Mortgage Association; or in guaranteed portions of
Small Business Administration notes;or in obligations,participations,
i
94
— 11 — Ch. 784
of or other instruments of, or issued by, a federal agency or a United
et States government-sponsored enterprise.
O'S (f) Bills of exchange or time drafts drawn on and accepted by a
or commercial. bank, otherwise known as bankers acceptances.
1e Purchases of bankers acceptances may not exceed 270 days maturity
.al
40 percent of the agency's surplus money that may be invested
pursuant nt to this section. However, no more than 30 percent of the
.e agency's surplus funds may be invested in the bankers acceptances
ry of any one commercial bank pursuant to this section.
,is This subdivision does not preclude a municipal utility district from
A investing any surplus money in its treasury in anymanner authorized
lg by the Municipal Utility District Act (Division 6 (commencing with
if Section 11501) of the Public Ltilities Code).
)n (g) Commercial paper of"prime" quality of the highest ranking
ie or of the highestletter and numerical rating as provided for by
Y, Moody's Investors Service, Inc., or Standard and.Poor's Corporation.
ie ..Eligible .paper is further limited to issuing corporations. that are
ie organized and operating within the United States and having total
assets in excess of five hundred million dollars ($500,000,000) and
at having an "A" or.higher rating for the issuer's debt; other than
,n commercial paper, if any, as provided. for by Moody's Investors
1-0 Service, Inc., or Standard and Poor's Corporation. Purchases of
eligible commercial paper. may not exceed 180 -days maturity nor
le represent more than 10 percent of the outstanding paper of an issuing
t corporation. Purchases of commercial.paper may not exceed 15
apercent of the agency's surplus.money that may be invested pursuant
to this section.An additional 15 percent,or a total of 30 percent of the
of agency.'.s surplus money, may be invested pursuant to this
,d 'subdivision.:The additional percent maybe so invested only if the
. .dollar-weighted..average maturity of the entire-.amount does not.
cis exceed 31 days.-"Dollar-weighted average maturity"means the sum .
a of the amount. of:each outstanding commercial paper investment
ie multiplied by the.number of days to maturity, divided by the. total
amount of'outstanding commercial paper.
of (h) Negotiable certificates`of:deposits issued.,by a nationally .or
ut state-chartered bank or a state''or federal association.(as defined by
d, Section 5102 of the Financial Code) or by a state-licensed branch of
it, a foreign bank. Purchases of negotiable certificates of deposit may
not exceed 30 percent of the agency's surplus money which may be
cd invested pursuant to this section. For purposes of this section,
negotiable certificates of deposits do .not come within Article 2
.sy (commencing with Section 53630), except that the amount so,
1invested shall be subject to .the limitations of Section 53638.
�f
ie (i) (1) Investments in repurchase agreements or reverse
of repurchase agreements of any securities authorized by this section,
as long as the agreements are subject to this subdivision, including,
s' the delivery requirements specified in this section.
4 94
it
a
Ch. 784 — 12 —
(2)
12 —(2) Investments in repurchase agreements may be made, on any
investment authorized in this section, when the term of the
agreement does not exceed one year: The market value of securities
that underlay a repurchase agreement shall be valued at 102 percent
or greater of the funds borrowed against those securities and the
value shall be adjusted no less than quarterly.
(3) Reverse repurchase agreements may be utilized only when
either of the following conditions are met:
(A) The security was owned or specifically committed to .
purchase, by the local agency, prior to December 31, 1994, and was
sold using a reverse repurchase agreement on December 31, 1994.
(B) The security to be sold on reverse repurchase agreement has
been owned and fully paid for by the local agency for a.minimum of
30 days prior to sale; the total of all.reverse repurchase agreements
on investments owned by the local agency -not purchased or
committed to purchase,prior to December 31, 1994,does not exceed
20 percent of the base value of the portfolio;and the agreement does
not exceed a term of 92 days,unless the agreement includes a written
codicil guaranteeing a minimum earning or, spread for the entire
period between the sale of a security using a reverse the
agreement and the final maturity date of the same security..
(4) After December 31, 1994, a reverse repurchase agreement
may not be entered into with securities not sold on a ,reverse
repurchase agreement and purchased, or committed to purchase.,
prior to that date; as a means of financing or paying far.the.security
sold on a reverse repurchase agreement, but may-only,be:entered
into with securities owned and previously paid for_for a minimum of
30 days prior to the settlementof the reverse repurchase agreement,
in orderto supplement the.yield on securities owned and previously.
paid for or to provide funds'f or the immediate payment of a local
agency obligation: Fundi.
or funds within the pool of an
equivalent amount to that obtained from selling a� .security_ to a
counterparty by way `of a reverse repurchase agreemerft, on
securities originally purchased subsequent to December. 31; -1994,
shall.not be-used to purchase another security with a niaturity:longer .
than 92 days from the initial settlement date of the -.reverse
repurchase agreement, unless the reverse repurchase .agreement
includes a writtencodicil guaranteeing a minimum earning or spread
for the entire period between the sale of a security using a reverse
repurchase agreement and the final maturity date of the same
security. Reverse repurchase agreements specified in subparagraph
(B) of paragraph (3) may not be entered into unless the percentage
restrictions specified in that `subparagraph are met, including the
total of any reverse repurchase_ agreements specified in
subparagraph (A) of paragraph (3).
(5) Investments in reverse repurchase agreements or similar
investments in which the local agency sells securities prior to
94
... .. .. .. .-vvar4iw.M�...H�...Mvvy'++✓ ..-wvun+'i...'-.'r�v.. ,
— 13— Ch. 784
cny purchase, may only be made upon prior approval of the governing
the body of the local agency.
zes (6) (A) "Repurchase agreement" means a purchase of securities
°nt by the local agency pursuant to an agreement by which the
he counterparty seller will repurchase the securities on or before. a
specified date and for a specified amount and the counterparty will
,-an deliver the underlying securities to the local agency by book entry,.
physical delivery,or by third party custodial agreement.The transfer
to of underlying securities to the counterparty bank's customer
vas book-entry account may be used for book-entry delivery.
14, (B) "Securities,"for purpose of repurchase under this subdivision,
has means securities of.the same issuer, description, issue date, and
I of maturity.
nts (C) "Reverse repurchase agreement"means a sale of securities by
or the local agency pursuant to.an agreement by which the local agency
:ed will repurchase the securities on or.before a specified`date and
oes includes other comparable agreements.
ten (D) For purposes of this section, the base value of the local
ire agency's pool portfolio shall be that dollar amount obtained by
ase totaling all cash balances placed in the pool by all pool participants,
excluding any,amounts obtained through selling securities by way of
int reverse repurchase agreements or other similar borrowing methods.
rse (E) :For purposes of this section, the spread is the difference
se., between the cost. of funds obtained using the reverse repurchase
ity agreement. and the earnings obtained on.the reinvestment of the
-ad funds. .
L of (F) Repurchase agreementsand reverse repurchase agreements
nt., shall only be made with primarydealers of the Federal Reserve Bank.
sly of New York:
cal (j-) Medium-term notes of a maximum of five years maturity issued
by corporations organized and operating within-the United States or
an
a by depository institutions licensed by the United States or=any state
on and operating within the United States Notes eligible for investment_
division shall be rated'in a rating category of"A"or its
942 under this sub
;er equivalent ..or, better by., a nationally..recognized..rating service.
rse Purchases of.medium-term notes may not exceed 30 percent of the
.nt agency's surplus money, which, may be invested pursuant to this
.zd section.
se (k) Shares of beneficial interest issued by diversified management
t1e companies investing in the securities and obligations as authorized
ph by subdivisions (a) to (l), inclusive, of this section and that comply
;ge with the investment restrictions of this article and Article 2
he (commencing with Section 53630). To be eligible for investment
in pursuant to this subdivision, these companies shall either:
(1) Attain the highest ranking or the highest letter and numerical
lar rating provided by not less than two of the three largest nationally
to recognized rating services.
94 94
I
Ch. 784 — 14 —
(2)
14 —(2) Retain an investment adviser registered with the Securities
and Exchange Commission with not less than five years' experience
investing in the securities and obligations as authorized by
subdivisions (a) to (M), inclusive, and with assets under
management in excess of five hundred million dollars ($500,000,000}.
The purchase price of shares of beneficial interest purchased
pursuant to this subdivision shall not include any commission that
these companies may charge and shall not exceed 15 percent of the
agency's surplus money that may be invested pursuant to this section.
(1) Notwithstanding anything to the contrary contained in this
section, Section 53635, or any other provision of law,moneys held by
a trustee or fiscal agent and pledged to the payment or security of
bonds or other indebtedness,or obligations under a lease,installment
sale, or other agreement of a local agency, or certificates of
participation in those bonds, indebtedness, or lease installment sale,
or other agreements,.may be invested in. accordance with. the
statutory provisions governing the issuance of those bonds,
indebtedness,.or lease installment sale, or other agreement, or to the
extent not inconsistent therewith or if there are no specific statutory
provisions, in accordance with the ordinance, resolution, indenture,
or agreement of the local agency providing for the issuance..
(m). Notes,bonds,or other obligations that are at all times secured
by a valid first priority security interest in securities of the types listed
by Section 53651 as eligible securities for the purpose of securing local
agency deposits having'a market,value at least equal to that required
by.Section 53652 for the purpose of securing local agency deposits.
The securities serving as collateral shall be placed by delivery or book
-entryinto the custody of a trust company or the.trust department of
a bank.which is not affiliated with the issuer of the secured obligation,
and the.security interest shall be perfected in accordance with the
requirements of the,.. Uniform , Commercial Code.. or federal
regulations.applicable to the types of securities in which-the security
interest is granted;
(n) Any mortgage.pass-through security,collateralized mortgage
r{ obligation,mortgage-backed or other.pay-through bond,equipment
lease-backed certificate, " consumer receivable _ . pass-through
certificate, or consumer receivable-backed bond of a-maximum of
five years maturity. Securities eligible for investment under this
subdivision shall be issued by an issuer having an"A"or higher rating
for the issuer's debt as provided by a nationally recognized rating
service and rated in a rating category of "AA" or its'equivalent or
better by a nationally recognized rating service. Purchase of
securities authorized by this subdivision may not exceed 20 percent ,
of the agency's surplus money that may be invested pursuant to this
section.
SEC. 15. Section 53601.6 is added to the Government Code, to
read:
94
- 15 — Ch. 784
ties 53601.6. (a) A local agency shall not invest any funds pursuant to
ace this article in inverse floaters,range notes, or interest-only strips that
by are derived from a pool of mortgages.
der (b) A local agency shall not invest any funds pursuant to this
►0). article in any security that could result in zero interest accrual if held
sed to ' maturity. However, a local agency may hold prohibited
hat instruments until their maturity dates. The limitation in this
the subdivision shall not apply to local agency investments in shares of
.on. beneficial interest issued by diversified management companies
this registered under the Investment Company Act of 1940 (15 U.S.C.
by Sec. 80a-1, and following) that are authorized for investment
of pursuant to subdivision (k) of Section 53601.
ent J SEC. 16. Section 53630.1 is added to the Government Code, to
of read:;
ale, 53630.1. The Legislature hereby finds that the solvency and
the creditworthiness of each individual local agency can impact the
ids, solvency and creditworthiness of the state and other local agencies
the -within the state. Therefore, to protect the solvency and
ory creditworthiness of the state and all of its political subdivisions, the
ire, Legislature hereby declares that the deposit and investment of
public funds by local officials and local agencies is an issue of
red statewide concern.
ted SEC. 17. Section 53631.5 is added to the Government Code, to
)cal read:
red . 53631.5. . (ay A local agency shall not invest any funds pursuant to
lits. this article in inverse floaters,range notes,or interest=only strips that
aok -are derived from a pool of mortgages.
t of (b) A local agency shall not invest any funds -pursuant to this
ion, article in any security that could result in zero interest accrual if held
the to maturity. However, a local agency may hold prohibited
gyral instruments until their maturity dates. The limitation in this
rity subdivision shall not.apply to local agency investments in shares of
beneficial -interest issued;by diversified management companies.
age registered-under the.Investment:Company.:Act of J940 (15 U.S.C.
.ent . Sec. 80a-1, 'and` following). that, are authorized. for investment
agh pursuant to subdivision (k) of Section53601.
i of SEC. 18. Section 53635 of the Government Code is amended to
this read:
ang 53635. As far as possible,all money belonging to,or in the custody
g of, a local agency, including money paid to the treasurer or other
t or official to pay the principal, interest,,or.penalties of bonds, shall be
of deposited for safekeeping in state or national banks, savings
-ent associations or federal associations,credit unions,or federally insured
this ; industrial loan companies in this state selected by the treasurer or
other official having the legal custody of the money; or, unless
to otherwise directed by the legislative body pursuant to Section 53601,
' may be invested in the investments set forth below. A local agency
94 94
Ch. 784 — 16
purchasing or obtaining any securities de rs =5 i in 11his sechcrl, in a
negotiable,bearer,registered,or nonregistered format,shall regtaire
delivery of all the securities to the local. ageiacy, i.icluding those,
purchased for the agency by financial. advisors; consultants, or
managers using the agency's funds,by book entI.y physical defivery,
or by third-party custodial,agreement. The transfer of securities to
the counterparty bank's customer book entry accoF -tt ratly be used
for book-entry delivery. For purposes of this iiection, "counterparty"
means the other party to the transaction. A counterparty bank's trus'
department or separate safekeeping department ruay be used for the
physical delivery of the security if the security is held in the name of
the local agency.
(a) Bonds issued by the local agency, i�eluding bonds payable
solely out• of the revenues from a revenue-producing propert
owned, controlled,. or operated by the ocal agency or by a.
department,.board, agency, or authority of the loc:a] agency.
b United States Tre asury notes, bonds, bills, or certificates of
indebtedness, or those for which the faith ai).cf Yedit +:tf the fno-eci'
States are pledged for the payment of principal. =;rTa:l irate °est. r
(c). Registered state .warrants or treasury not =ola'cis of tills
state, including bonds payable solely out of the revenues froxr, �
revenue-producing propertyowned, con trolied-, o' operated. by t4 e
state or by a department, board, agency, or authority of the state
(d) Bonds,notes,warrants, or other evidences of indebteclriess of �
any local agency within this state,including bonds payable solely out:
of the revenues ;from a.. revenue-producing property mArned,
controlled, or operated by the local agency, o;r by a dep,a.rtni nt,
board,.agency,or authority of the local agency.
(e) Obligations..issued.by banks for. cooperatives, federal land
banks, federal intermediate.credit banks, federal some loan banks,
the Federal Home Loan Bank,the Tennessee Malley.Authority, or in
obligations, participations, or other instruments of, or issued by, or
fully guaranteed as:to principal and interest by,the Federal National
a'. Mortgage-Association, or in guaranteed portions of Small Business
Administrauon: notes, or: in obligations, participations, or other
mstruments`of, or.,issued-by, a federal agency or a. United States
government-sponsored enterprise.
(f) i Bills of exchange or time drafts drawn can l accepted by ,i
commercial bank, otherwise known as'bankers xt:ctptances, whi.cL.
are eligible for purchase by the Federal Reserve System. Purchases
of bankers acceptances may not exceed 270 day's maturity oir 0
percent of the agency's surplus funds which may be invested
pursuant to this section. However, no more thati 30 _aercer1t )f° the
agency's surplus funds may be invested in the bankers acceptances
of any one commercial bank pursuant to this section.
This subdivision does not preclude a municipal.utility district front:.
investing any surplus money in its treasury in any rv,,a ner
f
• •.... .__sae�. _ .. ... .. .... ._._yam _ - - �¢5J:.1:3J.SJu.'Y..:i:SJ.:L'.ti1.v.::L'Sv.
—.�_.__.r.�:vv...r _.r..w..w`.u......•.a - ._acu.evuwuuv. w+u•.•+>v..a_van. w. vv.au..,....,_._.....uu=_...
♦ 1e 1 M
• 1�
— 17 — Ch. 784
a by the Municipal Utility District Act, Division 6 (commencing with
-e Section 11501) of the Public Utilities Code.
;e (g) Commercial paper of"prime" quality of the highest ranking
,r or of the highest letter and numerical rating as provided for by
y, Moody's Investors Service, Inc., or Standard and Poor's Corporation.
:o Eligible paper is further limited to issuing corporations that are
d organized and operating within the United States and having total
99 assets in excess of.five hundred million dollars ($500,000,000) and
A having an "A" or higher rating for the issuer's debt, other than
_e commercial paper, if any,- as provided for by Moody's Investors
f Service, Inc., or Standard and Poor's Corporation. Purchases of
eligible commercial paper may not exceed 180 days maturity nor
.e represent more than 10 percent of the outstanding paper of an issuing
y corporation. Purchases of commercial paper. may, not exceed 15
a percent of the. agency's surplus money which may be invested
pursuant.to. this section. An additional 15 percent, or a.total of 3.0
)f percent.of the agency's money or money in I
its custody, may be
d invested pursuant to this subdivision. The additional 15 percent may
be so invested only if the dollar-weighted average maturity, of the
is entire amount.does not exceed 31 days. "Dollar-weighted average
a maturity' m means the su .of the amount of each outstanding
e commercial paper investment multiplied by the number of days to
maturity, divided by the total amount of outstanding commercial
)f paper.
it (h). Negotiable certificates of:deposit issued by a, .nationally or
i, state-chartered bank.or a savings association or federal association or
t, a state .or federal.credit union,or by a;state-licensed branch of a
foreignbank.'Purchases ,of negotiable certificates of deposit may not
d exceed 30 percent..of the agency's surplus money which may be
S, invested :pursuant to this section.. For'.purposes of this section,
n negotiable certificates of deposit do..not. come within Article 2
,r (commencing with Section 53630)..,of.Chapter 4.of Part 1 of Division-
d 2 of Title 5,except:that the.atnount so invested shall.be subject to the .
;S limitations :of Section..53638. . Forpurposes of. this section, the
legislative body of'a.local._agency:and the.treasurer or-other official.
.s of the.local agency having legal custody of the money are-prohibited
from depositing or investing local agency funds, or funds in the
a custody.of the local agency,in negotiable certificates of deposit issued
h by a state or federal credit union if a member of the legislative body
,s of the local agency, or.an employee of the administrative officer,
:0 manager's office, budget office, auditor-controller's office, or
d treasurer's, office of the local agency also serves on the. board of
e directors,or any committee appointed by the board of'directors, or
.s the credit committee or supervisory committee of the state or federal
credit union issuing the negotiable certificates of deposit.
n (i) (1) Investments in repurchase agreements or reverse
d repurchase agreements of any securities authorized by this section,
.4 94
Ch. 784 _ 18—
so
- 18—so long as the agreements are subject to this subdivision,including the
delivery requirements specified in this section.
(2) Investments in repurchase agreements may be made, on any
investment authorized in this section, when the term of the
agreement does not exceed one year.The market value of securities
that underlay a repurchase agreement shall be valued at 102 percent
or greater of the funds borrowed against those securities and the
value shall be adjusted no less than quarterly.
(3) Reverse repurchase agreements may be utilized only when
either of the following conditions are met:
(A) The security was owned , or specifically .committed to
purchase, by the local agency, prior to repurchase agreement on
December 31, 1994, and was sold, using a reverse repurchase
agreement on December 31; 1994.
(B): The security to be'sold on reverse repurchase agreement has
been owned and fully paid for by.the local agency for a minimum of
30 days prior to`sale, the'totatof all reverse repurchase agreements
on investments -owned by the local agency not purchased or
committed to purchase,prior to December 313: 1994, does not exceed
20 percent of the base value of the portfolio,and the agreement does
not exceed a term of 92 days,unless the agreement includes a written
codicil guaranteeing a minimum earning or spread for the entire
period between the sale of a security using_a reverse-repurchase
agreement,and the ,final maturity dateof the same security.
(4) After December 31, 1994, a reverse repurchase agreement
may' not beentered into with.securities not sold' on a reverse
repurchase agreement.and purchased, or committed to purchase,
prior to that date, as a'
means, financing or paying for the security
sold on a reverse repurchase.agreement, but may only be entered
into with securities owned andpreviously paid for,for a minimum of
30 days prior to the`settlement of the reverse repurchase agreement,
in order to supplement the yield on°'securities owned-and previously
..paid for°or to providefunds for the �irninedi.ate-payment of a'local
agency;obligation Funds obtained or funds within the poor of an
equivalent :lamount°"to`that` obtained from selling a securityto a
counterparty by way of a reverse repurchase agreement, on
securities originally.purchased subsequent to December`31, 1994;
shall notbe used to purchase another securitywith a maturity.longer
than 92 days from the initial settlement date of the reverse
repurchase agreement, unless the,, reverse repurchase agreement
includes a written codicil guaranteeing a minimum earning or spread 1
for the entire period between the sale of a security using a reverse
repurchase agreement and the final maturity date of the same
security. Reverse repurchase agreements specified in subparagraph
(B) of paragraph (3) may not be entered into unless the percentage
restrictions specified in that subparagraph are met, including the
94
---------------
--- 19 — Ch. 784
g the total of any reverse repurchase agreements specified in
subparagraph (A) of paragraph (3).
t any (5) Investments in reverse repurchase agreements or similar
the investments in which the local agency sells securities prior to
-,*tiesi
purchase, may only be made upon prior approval of the governing
-cent body of the local agency.
I the (6) (A) "Repurchase agreement" means a purchase of securities
by the local agency pursuant to an agreement by which the
ilien counterparty seller will repurchase the securities on or before a
specified date and for a specified amount and the counterparty will
I to deliver the underlying securities to the local agency by book entry,
A on physical delivery,or by third party custodial agreement.The transfer
haie of underlying securities to the counterparty bank's customer,
book-entry account may be used for book-entry delivery.
t has (B) "Securities,"f6r purpose of repurchase under this subdivision,
M of means securities of the same issuer, *description, issue date, and
ents maturity.
or (C) "Reverse repurchase-agreement"means a sale of securities by
--eed the local agency pursuant to an agreement by which the local agency
joe,9 Will repurchase the.securities- on or before a' specified date, and
tten. includes other comparable agreements.
itire (D) For purposes of this section, the base value of the local
case agency's. pool portfolio, shall be that 'dollar amount obtained by
totaling all cash balances placed in the pool by all pool participants,
ient excluding any amounts obtained through'selling securities by way of
erse reverse repurchase"agreements or other similar borrowing methods.
lase, (E) For purposes of this section, the spread, is the difference
trity between the cost of funds obtained using the reverse,repurchase
agreement nt and the earnings obtained on the reinvestment of the
.red gs
cn of funds'.
ent, (F) Repurchase agreements and reverse repurchase agreements
.
'usly. shall only be made with primary dealers of the'Federal Reserve Bank
oval of New.York.
f an 0) Medium-term. notles of a maximum of five years'' maturity
to a issued bycorporations organized and,operating within.the United
on States or by depository institutions licensed by theUnited States or
994$- any state and operating within the United States. Notes eligible for
Iger investment under this subdivision shall be-rated in a rating category
,rse
Z of"A" or its equivalent or better by a nationally recognized.rating tent service.Purchases of medium-term notes may not exceed 30 percent,
'ead of the agency's surplus money which may be invested pursuant to this
,zrse section.
ime (k) Shares of beneficial interest issued by diversified management
aph companies investing in the securities and obligations as authorized
age by subdivisions (a) to (k),inclusive,of this section and which comply
the with the investment restrictions of this article and Article I
(commencing with Section 53600) . To be eligible for investment
94 94
} J
Ch. 784 — 20 —
pursuant
20 —pursuant to this subdivision, these companies shall either: (1) attain
the highest ranking or the highest letter and numerical rating
provided by not less than two of the three largest nationally
recognized rating services, or (2) have an investment adviser
registered with the Securities and Exchange Commission with not
less than five years' experience investing in the securities and
obligations as authorized by subdivisions (a) to (m), inclusive, of this
section and with assets under management in excess of five hundred
million dollars ($500,000,000). The purchase price 'of shares of
beneficial interest purchased pursuant to this subdivision shall not
include any commission that these companies may charge and shall
not exceed 15 percent of the agency's surplus money which may be
invested pursuant to this section.
(l) Notes, bonds, or .other obligations which are at all times
secured'by a valid first priority security interest in securities:.of the
types listed by Section 53651 as eligible securities for the purpose of
securing local agency deposits having a market value at least equal
to that required by Section 53652 for the purpose of securing local '
agency deposits: The securities serving as collateral shall be placed
by delivery or book entry into the custody of a trust company or the
trust department of a bank which is not affiliated with the issuer of
the secured obligation,and the security interest shall be perfected in
accordance with the requirements of the-Uniform Commercial Code
or federal regulations applicable to the types of securities in which
the security interest is granted.
i -mortgage ass-throw h security,collateralized mortgage(m) An .
obligation, mortgage-backed or other pay-through bond,equipment
lease-backed certificate, consumer receivable pass-through
certificate, or consumer receivable-backed bond of a maximum of '
f five years maturity. Securities eligible for investment'under this
subdivision shall be issued by an issuer having an"A','or higher rating
for the issuer's debt as provided,by a nationally recognized rating
service and rated in a rating category of "AA or its equivalent or
better by `a nationally recognized -rating service: Purchase of
securities authorized by this subdivision may riot exceed 20 percent
of thel agency's surplus money that may be invested pursuant to this
section.
j SEC. 19. Section 53821.5 is added to the Government Code, to
read:
53821.5. Proceeds of sales or funds set aside for the repayment of
any notes issued pursuant to this article shall not be invested for a
term that exceeds the term of the notes.
SEC, 20. Section 53841.5 is added to the Government Code, to
read:
53841.5. Proceeds of sales or funds set aside for the repayment of
any notes issued pursuant to this article shall not be invested for a
term that exceeds the term of the notes.
94
n
—21 — Ch. 784
ttain SEC. 21. Section 53852.5 is added to the Government Code, to
sting read:
pally r` 53852.5. Proceeds of sales or funds set aside for the repayment of
viser any notes issued pursuant to this article shall not be invested for a
i not { term that exceeds the term of the notes.
and SEC. 22. Section 53859.02 of the Government Code is amended
this to read:
3red 53859.02. (a) A local agency may borrow money pursuant to this
:s of article, the indebtedness to be represented by a grant anticipation
not note or notes issued to the lender pursuant to this article.The money
shall borrowed may be used and expended by the local agency solely for
y be the purpose for which the grant or loan is to be received.
(b) Proceeds of sales or funds set aside for the repayment of any
Imes notes issued pursuant to this article shall not be invested for a term
the than exceeds the term of the notes.
ie of
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-oval
teed
the
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,d in
,ode
uch
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ting
ting
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it of
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94 94